Name: Keerat Sidhu

Roll Number: IPL01056

Session 05:
Provisions of Banking Regulation Act:
 Section 10BB: Power of Reserve Bank to appoint 6 [chairman of the Board of
directors appointed on a whole-time basis or a managing director] of a banking
company.
Reserve Bank's power to appoint the chairman or managing director of a banking
company in the event of a vacancy, ensuring that the company's interests are
protected. The appointed individual, meeting the criteria of section 10B, assumes the
role, even if not already a director, and holds office for up to three years. The Reserve
Bank determines their pay, and removal from office can only be executed by the
Reserve Bank. Essentially, the provisions align with those governing appointments
made directly by the banking company. The Reserve Bank's ability to appoint a
chairman or managing director for a banking company if the position is vacant and its
continuation is deemed harmful to the company's interests. The appointee, meeting
the criteria in section 10B, is considered a director during their term, employed full-
time by the banking company for a specified period (up to three years), with the
possibility of reappointment. The Reserve Bank has the authority to set their pay, and
only the Reserve Bank can remove them from office. The provisions closely mirror
those applicable to individuals appointed directly by the banking company under
section 10B.
 Section 11: Requirement as to minimum paid-up capital and reserves.—
 Banking Company Business Limitations: Despite section 149 of the
Companies Act, 1956, existing banking companies, post the commencement of
this Act, cannot continue business in India after three years unless an
extension of up to one year is granted by the Reserve Bank in specific cases.
New banking companies are barred from starting or conducting business in
India without adhering to the applicable requirements outlined in this section.
 Requirements for Foreign Banking Companies: Banking companies
incorporated outside India must meet specific conditions, including a
minimum aggregate value of paid-up capital and reserves. Such companies are
also required to deposit defined amounts with the Reserve Bank, and the
Central Government, based on the Reserve Bank's recommendation, may
temporarily exempt certain deposit-related provisions.
 Capital and Reserve Criteria for Other Banking Companies: For banking
companies not covered by the provisions mentioned in (2), the aggregate value
of paid-up capital and reserves must meet specified criteria based on the
number and location of their places of business. Banking companies starting
operations after the Banking Companies (Amendment) Act, 1962, must have a
paid-up capital of at least five lakhs of rupees.
 Section 12: Regulation of paid-up capital, subscribed capital and authorised
capital and voting rights of shareholders.
  Capital and Voting Regulation for Banking Companies: Indian banking
companies must comply with specific rules regarding their capital structure.
Subscribed capital should be at least half of authorized capital, and paid-up
capital must be at least half of subscribed capital. If there's a capital increase,
the company must meet specified conditions within a two-year period, as
allowed by the Reserve Bank. Moreover, a banking company's capital, as per
the Companies Act, 1956, should consist of either equity shares alone or a
combination of equity and preference shares. The issuance of preference
shares must align with Reserve Bank guidelines, with preference shareholders
not entitled to exercise voting rights as outlined in the Companies Act.
 Limitations on Voting Rights: Shareholders in a banking company are
restricted in exercising voting rights beyond ten percent of the total. The
Reserve Bank has the authority to gradually increase this limit from ten
percent to twenty-six percent in a phased manner.
 Ownership Title and Legal Proceedings: Despite existing laws or contracts,
legal action cannot be taken against a person registered as a shareholder in a
banking company, claiming the title belongs to someone else. However, this
doesn't bar legal actions by a share transferee based on a legally obtained
transfer or on behalf of a minor or lunatic whose shares are held by the
registered holder.
 Disclosure Requirements for Key Personnel: Every chairman, managing
director, or chief executive officer of a banking company is obligated to
provide the Reserve Bank with returns detailing the extent and value of their
shareholdings in the company, whether direct or indirect. This includes
information on any changes in their holdings or variations in associated rights,
as required by the Reserve Bank through official orders.
 Section 12A: Election of New Directors
The Reserve Bank holds the authority to instruct a banking company to organize a
shareholder meeting within a specified timeframe (not less than two months) to elect
new directors. The elected directors will serve until the originally intended end date of
their predecessors, and elections conducted under this provision are immune to legal
challenges.
 Section 12B: Regulation of acquisition of shares or voting rights
Without prior approval from the Reserve Bank, no individual (referred to as the
"applicant") can acquire shares or voting rights in a banking company exceeding
five percent of the paid-up share capital. Approval is granted based on factors such
as public interest, banking policy, prevention of detrimental affairs, emerging trends,
and the fitness of the applicant as a proper person. The Reserve Bank may impose
conditions and specify criteria for varying percentages.
If a share transfer is disallowed by the Reserve Bank, the banking company must
comply, and the transferee cannot exercise voting rights on poll in any company
meetings. The Reserve Bank's decision on applications should be made within ninety
days, excluding the time taken by the applicant to furnish requested information. The
Reserve Bank may also set a minimum percentage of shares to be acquired in a
banking company based on the purpose of the acquisition. If a person or persons,
 acting together, exceed five percent of total voting rights, the Reserve Bank can
restrict their voting rights if it deems them unfit.
 Section 13: Restriction on commission, brokerage, discount, etc., on sale of
shares
Irrespective of the provisions in sections 76 and 79 of the Companies Act, 1956,
banking companies are prohibited from making payments, whether directly or
indirectly, exceeding two and a half percent of the issued share price. This restriction
covers various forms of compensation, such as commission, brokerage, discount, or
any other type of remuneration. The definition of the "price at which the said shares
are issued" includes the premium amount or value on those shares, as explicitly
clarified.
 Section 14: Prohibition of charge on unpaid capital
No banking company is allowed to create any charge on its unpaid capital, and any
attempt to do so renders such a charge invalid. This prohibition aims to safeguard the
unpaid capital of banking companies, preventing any encumbrance on these funds.
 Section 14A: Prohibition of floating charge on assets
In addition to the restrictions outlined in section 6, banking companies are prohibited
from creating a floating charge on their undertaking or any part of their property
unless certified in writing by the Reserve Bank as not being detrimental to the
interests of depositors. Any floating charge created without the Reserve Bank's
certification is considered invalid. If a banking company disagrees with the
certification refusal, it has the right to appeal to the Central Government within ninety
days. The decision of either the Central Government or the Reserve Bank (in the
absence of an appeal) is final.
 Section 15: Restrictions as to payment of dividend
Banking companies are prohibited from paying dividends on their shares until they
have completely written off all capitalized expenses, covering various categories of
expenditures. This measure is in place to ensure the financial health of the banking
company before distributing profits to shareholders.
 Section 16: Prohibition of common directors
While the general rule restricts dividend payments until all expenses are written off,
banking companies are allowed to pay dividends without writing off certain
depreciation and bad debts. This exception applies when adequate provisions for these
financial elements have been made to the satisfaction of the company's auditor.
 Section 17: Reserve Fund
Every banking company incorporated in India is required to create a reserve fund. A
minimum of twenty percent of the annual profit, as disclosed in the profit and loss
account, must be transferred to the reserve fund before declaring any dividends.
Exceptions to this rule may be made by the Central Government based on the
recommendation of the Reserve Bank, considering the adequacy of paid-up capital
and reserves in relation to deposit liabilities.

Concepts Taught: Difference between SLR and CRR

SLR is like a safety net for banks, requiring them to keep a certain percentage of their
deposits in easily convertible assets. This ensures that even if there's a rush of withdrawals,
the bank has enough secure resources to handle it. The main goal of SLR is to guarantee the
financial health of banks. By mandating a portion of deposits to be in safe assets, SLR
promotes trust in the banking system and contributes to the overall stability of the financial
landscape.
CRR is a rule that tells banks they need to keep a specific amount of their deposits in cash
with the central bank. This pile of cash doesn't earn interest but gives the central bank a tool
to manage how much money is circulating in the economy. CRR is like a remote control for
the central bank. By adjusting how much cash banks must keep aside, the central bank can
influence lending, control inflation, and keep the economic ship sailing smoothly.